Italy economy minister fears trade war more than battle of currencies

DAVOS, Switzerland (Reuters) - Italy’s economy minister said on Thursday he was more worried about a possible international trade war than a tussle over currency exchange rates, following comments by the U.S. Treasury Secretary welcoming a weaker dollar.

“What I am more concerned about is not so much the possibility of a currency war. I am much more concerned about the possibility of a looming trade war,” Pier Carlo Padoan told Reuters at the World Economic Forum in Davos.

Earlier on Thursday, U.S. Treasury Secretary Steve Mnuchin played down his previous comments about the dollar, which had sent the U.S. currency reeling the day before.

Asked whether he was alarmed by Mnuchin’s original comments, Padoan replied: “There is a concern if this goes beyond what is acceptable, but I am not so much concerned.”

While vulnerable to clashes over trade and affected by the exchange rate, Europe’s economy is strong and the most important factors are investment and productivity, Padoan said, adding that this applied to his native Italy.

Padoan struck a reassuring note about Italian elections set for March 4, in which he will stand for the ruling center-left Democratic Party (PD) and which looks unlikely to produce a clear winner.

“There is the risk of a hung parliament and therefore a period of uncertainty may come, but I am also confident this ... will not impact on the strong performance of the Italian economy we are seeing now,” he said.

Italy’s economy has been picking up slowly since late 2014 and the government estimates that last year it posted its fastest growth rate since 2010, but this would still leave it among the most sluggish in the single currency bloc.

The economy has been held back by a mountain of bad loans that have clogged Italy’s banking system. Banks have accelerated efforts to remove distressed debt from their balance sheets but are under pressure from the European Central Bank to do more.

Padoan said he hoped European regulators would refrain from asking lenders to tackle this problem too quickly, warning that that “will make banks not more healthy but less healthy”.

Touching on Britain’s decision to leave the European Union, Padoan said a country was either a member of the bloc or it was not, and “ambiguous conditions in between are not acceptable”.